2017 (11) TMI 1129 - AT - Income Tax

Claim of exemption u/s 54B - denial of claim primarily for the reason that the land in question was not used for agricultural purpose for two years immediately preceding the date on which the said agricultural land was sold by the assessee - assessee has cultivated only kharif crop in the immediately preceding two years from the date of sale of land - Held that - The objections raised by the Commissioner of Income-tax (Appeals) in rejecting the claim of the assessee are of trivial nature and would not impact adjudication of care issue. In our opinion the same are not warranted when the entries made in the revenue records clearly show that there was cultivation on the land. In so far as determination of two years period is concerned, the period of two is to be determined from date of sale and not the immediately two preceding financial years. The date of sale of land is January 3, 2012. Thus, the period of two years have to be reckoned from January, 2010 onwards. As has been pointed earlier that the land of the assessee is Jirayat land. The assessee could cultivate Kharif crop only on the land during the period starting from April to September. The assessee has shown from the records that the land was under cultivation during the immediately two preceding years and the assessee had grown soyabean and jowar crops on the land. The assessee has satisfied the conditions that the land is being used in two immediately preceding years for the purpose of agriculture before the date of sale. As decided in the case of Ramesh Narhari Jakhadi v. ITO (1992 (2) TMI 178 - ITAT PUNE ) that it is not necessary that the land should have used for agricultural purposes for full two years immediately preceding the date of transfer. Even if the land is used for some days in the year earlier to the preceding year it would be sufficient for compliance with the provisions of section 54B of the Act. Thus, even if the assessee has cultivated only kharif crop in the immediately preceding two years from the date of sale of land, the condition set out in section 54B for claiming benefit of exemption is complied with. Thus, in view of the facts and documents on record, we are of the considered view that the assessee has complied with all the conditions for claiming the exemption under section 54B of the Act in the assessment year under appeal. Accordingly, the impugned order is set aside and the appeal of the assessee is allowed. - Decided in favour of assessee.

Issues Involved:
1. Denial of exemption under section 54B of the Income-tax Act, 1961.
2. Use of land for agricultural purposes in the two years immediately preceding the sale.
3. Classification of the land as urban or rural for the purposes of section 54B.
4. Validity and reliability of evidence provided by the assessee regarding agricultural activities.

Detailed Analysis:

1. Denial of Exemption under Section 54B of the Income-tax Act, 1961:
The primary issue was whether the assessee was entitled to claim exemption under section 54B of the Income-tax Act, 1961. The assessee had claimed exemption on the capital gain earned from the sale of land, which he had deposited in a specified capital gains account. The Assessing Officer (AO) denied the exemption, concluding that the land was not used for agricultural purposes for the last 2-3 years, and the land was urban, thus not qualifying under section 54B.

2. Use of Land for Agricultural Purposes:
The AO and the Commissioner of Income-tax (Appeals) (CIT(A)) found that the land was not used for agricultural purposes in the two years immediately preceding the sale. The assessee argued that the land was temporarily acquired by the District Administration for a public event, which prevented agricultural activities during the financial years 2008-09 and 2009-10. The assessee provided 7/12 extracts showing cultivation in the financial years 2010-11 and 2011-12, which the AO disputed. The Tribunal found that the 7/12 extracts provided by both the assessee and the AO were identical and showed agricultural activities, thus supporting the assessee's claim.

3. Classification of Land as Urban or Rural:
The AO argued that since the land was within 3 km of the municipal limits, it was urban and did not qualify for exemption under section 54B. The Tribunal noted that section 54B requires the land to be a capital asset used for agricultural purposes in the two years immediately preceding the transfer. The Tribunal found that the land met these conditions, and the classification as urban did not disqualify the land from exemption under section 54B.

4. Validity and Reliability of Evidence:
The AO and CIT(A) questioned the validity of the 7/12 extracts and the sales bills provided by the assessee, suggesting they were not genuine. The Tribunal found that the land revenue records and the 7/12 extracts indicated agricultural use, and the sale bills, though from traders not maintaining books of account, were credible. The Tribunal emphasized that the Department had accepted the assessee's agricultural income in previous years without issue.

Conclusion:
The Tribunal concluded that the assessee had satisfied all conditions for claiming exemption under section 54B. The land was used for agricultural purposes in the two years immediately preceding the sale, and the classification as urban land did not disqualify it from exemption. The Tribunal allowed the appeal, setting aside the impugned order and granting the exemption claimed by the assessee.

Order:
The appeal of the assessee was allowed, and the order was pronounced on Wednesday, the 16th day of August, 2017.

← Previous Next →